Emerging Markets: Brazil

Roundup

 

By Antonio Guerrero

 

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Itaipu: Hydro plant blamed for near-nationwide blackout

Banco do Brasil, controlled by the federal government, may seek up to $4.4 billion in primary and secondary share offerings during the first half of the year, according to a Deutsche Bank report. Banco do Brasil launched Level 1 ADRs in early December and will push to boost its free float from 21.7% to the 25% required by the BM&FBovespa exchange’s Novo Mercado corporate governance level. The bank has until June 2011 to meet the requirement. New share offerings would push Banco do Brasil’s tier 1 capital above 11%, from 9.1% last September.

 

In a move to increase its market share of low-income clients, Caixa Economica Federal (CEF), Brazil’s federal savings bank, acquired a 35.5% stake in Banco PanAmericano, a mid-size bank, for $430 million. The acquisition was completed through CaixaPar, CEF’s new equity unit. The move further increases state banks’ share of the banking sector, as part of president Luiz Inácio Lula da Silva’s goal of reducing borrowing costs. PanAmericano is focused on payroll-deductible consumer lending and auto loans. Ratings agencies Moody’s and Fitch have increased their outlooks on PanAmericano’s ratings to positive from stable.

 

Expectations of higher base interest rates and economic growth are helping Brazilian banks reach a “sweet spot,” according to Goldman Sachs. The situation will allow banks to increase lending and limit asset-quality problems while increasing margins on their asset-sensitive balance sheets. The investment bank predicts the economy will grow by 5.8% this year, up from its initial forecast of 4.8%. Goldman Sachs also predicts the Selic benchmark interest rate will rise from a record low 8.75% to 12.5% by year-end.

 

A widespread blackout in November has sparked discussions over Brazil’s deficient energy infrastructure, after some 60 million residents in 18 of the country’s 26 states were left in the dark for two hours. Officials blamed a failure at the Itaipu dam, the world’s largest hydroelectric plant, located on the border with Paraguay, for the outage. Itaipu supplies 20% of Brazil’s electricity and 90% of Paraguay’s. The plant managers claim the failure was in the transmission network, and analysts say the blackout revealed weaknesses in the country’s power infrastructure and illustrated the need for greater investment and better management. Brazil introduced energy reforms in 2003-2004 to reduce frequent blackouts experienced in 2001.

 

 

 

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